Correlation Between Cruzeiro and New Oriental

Can any of the company-specific risk be diversified away by investing in both Cruzeiro and New Oriental at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Cruzeiro and New Oriental into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Cruzeiro do Sul and New Oriental Education, you can compare the effects of market volatilities on Cruzeiro and New Oriental and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Cruzeiro with a short position of New Oriental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cruzeiro and New Oriental.

Diversification Opportunities for Cruzeiro and New Oriental

-0.36

Correlation Coefficient

Cruzeiro  New Oriental

Very good diversification

The 3 months correlation between Cruzeiro and New is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Cruzeiro do Sul and New Oriental Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Oriental Education and Cruzeiro is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Cruzeiro do Sul are associated (or correlated) with New Oriental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Oriental Education has no effect on the direction of Cruzeiro i.e., Cruzeiro and New Oriental go up and down completely randomly.

Pair Corralation between Cruzeiro and New Oriental

Assuming the 90 days trading horizon Cruzeiro do Sul is expected to under-perform the New Oriental. In addition to that, Cruzeiro is 1.23 times more volatile than New Oriental Education. It trades about -0.01 of its total potential returns per unit of risk. New Oriental Education is currently generating about 0.07 per unit of volatility. If you would invest  2,325  in New Oriental Education on September 25, 2024 and sell it today you would earn a total of  281.00  from holding New Oriental Education or generate 12.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Cruzeiro do Sul  vs.  New Oriental Education

Cruzeiro do Sul

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cruzeiro do Sul has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Cruzeiro is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

New Oriental Education

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in New Oriental Education are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, New Oriental sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cruzeiro and New Oriental

The main advantage of trading using opposite Cruzeiro and New Oriental positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cruzeiro position performs unexpectedly, New Oriental can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in New Oriental will offset losses from the drop in New Oriental's long position.

The idea behind Cruzeiro do Sul and New Oriental Education pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.